Greece still to convince Europe over rescue deal

Published: 14 February 2012 7:47 AM

A protester hurls rocks at police during a violent anti-austerity demonstration in central Athens on February 12, 2012. — Reuters picATHENS, Feb 14 — Europe gave Greece until tomorrow to convince sceptical international creditors that it would stick to the punishing terms of a multi-billion-euro rescue package, endorsed by parliament as rioters torched downtown Athens.

Lawmakers backed drastic cuts in wages, pensions and jobs on Sunday as the price of a €130 billion (RM521.3 billion) bailout by the European Union and International Monetary Fund to avert a messy default that would send shockwaves through the euro zone.

Scenes of running battles between police and rioters and flames engulfing cinemas, shops and banks underscored a sense of deepening turmoil in the country after more than four years of recession and two of punishing austerity.

The EU warned on Monday that the consequences of failure would be “devastating.”

It gave the fragile ruling coalition of Prime Minister Lucas Papademos tomorrow, when euro zone finance ministers are expected to meet, to specify how €325 million of the €3.3 billion demanded in budget savings will be achieved.

By the same deadline, Greek political leaders must give a written commitment to implement the terms of the deal, a Greek government spokesman said, reflecting fatigue among EU leaders who say they have heard enough broken promises.

The spokesman said Greece would hold an election in April, when deep public anger over the second round of austerity could drive voters further to the left and right and test Greece’s commitment to the programme.

Euro zone paymaster Germany said ahead of the vote that it was losing patience with throwing money into the “bottomless pit” of Greece’s debt crisis. Official reaction from Berlin yesterday was muted.

“Now we need to wait and see what comes after the legislation,” Economy Minister and deputy Prime Minister Philipp Roesler said on German television.

“We have taken one step in the right direction but we are still far from the goal,” he said.

Greece needs the international funds before March 20 to meet debt repayments of €4.5 billion.

EU Economic and Monetary Affairs Commissioner Olli Rehn said a disorderly default would have devastating consequences for Greek society.

“I am quite confident that the other conditions, including the identification of concrete measures of €325 million, will be completed by the next meeting of the Eurogroup, which would then decide on the adoption of the programme,” he said.

“Social explosion”

The deal provides for a bond swap to ease Greece’s debt burden by cutting the real value of private-sector investors’ bond holdings by some 70 per cent.

Sources familiar with the private sector debt talks said the terms would be announced after euro zone finance ministers meet tomorrow, assuming there are no further setbacks.

They will include a new average interest rate of 3.5 per cent for bondholders and an additional warrant linked to Greek growth, one of the sources said.

“It will be concluded in March,” Greek government spokesman Pantelis Kapsis said of the debt swap deal.

Asian shares and the euro gained modestly yesterday and bank shares led European stocks higher.

Papademos is likely this week to replace one minister and five deputies who quit over the rescue bill. He had warned of a “social explosion” if lawmakers rejected the deal and Greece defaulted.

But the unrest in the streets, and a voting rebellion by 43 parliamentarians of the ruling coalition, suggested Athens might already be on the brink.

The riots spread to Greece’s second city of Thessaloniki, towns across the country and the islands of Crete and Corfu. In all, 150 shops were looted in the capital and 93 buildings set ablaze, wrecked or seriously damaged.

About 100 people — including 68 police — were wounded and 130 detained.

Athens city authorities said some of the wrecked buildings were of particular cultural, historic and architectural value.

The Attikon cinema, housed in a neo-classical building dating from 1870, was left a blackened shell.

“The people yesterday sent a message: Enough is enough! They can’t take it anymore,” said Ilias Iliopoulos, general secretary of public sector union ADEDY.

Groundswell of anger

The cuts include a 22 per cent reduction in the minimum wage and 150,000 jobs from the public sector workforce by 2015.

Critics yesterday said more austerity would only condemn the economy to an ever-deepening downward spiral, but Greek political leaders have offered few alternatives.

Conservative New Democracy leader Antonis Samaras says the country should focus more on stimulating growth with tax cuts and privatisation.

Some ordinary Greeks say they have heard enough threats of economic armaggedon, and that a messy default can be no worse than the painful medicine they are currently being made to swallow.

“Yesterday’s vote in the parliament may have saved the country temporarily from default, but the Greek economy is going bankrupt and the country’s political system is failing,” the head of the Greek Commerce Confederation, Vassilis Korkidis, said.

The rioters were a minority, but spoke to the groundswell of anger among Greeks who say their living standards are already collapsing and more austerity will only deepen their misery.

Unemployment in Greece reached 20.9 per cent in November, and half of young Greeks are jobless.

Samaras is the frontrunner to be the next prime minister, but will likely have to bargain with other parties to form a coalition after the April election.

In comments that could further sow doubt in Brussels, he indicated that Athens might yet try to renegotiate the deal.

“I am calling on you to vote for the new loan agreement because I want to avoid falling into the abyss, to restore stability,” he told Sunday’s parliamentary debate, “so that we can have the possibility tomorrow to negotiate and change the policy that is being imposed upon us today.” — Reuters

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